Yes, seriously, it has been. Just look at the spate of news that has emerged from the industry this week. Tata Steel, the largest Indian steelmaker, confirmed that it will cut 1,200 jobs in its UK plants . The company will close one of the two coke ovens at Scunthorpe, and mothball plate mills in Scunthorpe, and Dalzell and Clydebridge in Scotland.
Tata Steel’s acquisition of Corus in 2006 was immediately followed by a global meltdown in commodities. Since then, the Indian company has suffered, with the debt it took to finance the $13 billion-deal weighing it down. According to Reuters, two-thirds of the company’s $9.2 billion debt is attached to the European business.
Another 1,700 jobs are at risk in the UK, which, at present, has one of the weakest steel markets. Just a day before Tata Steel’s announcement, another steel doyen, Lord Swaraj Paul announced that his Caparo Industries has gone into ‘administration.’ The company has 16 different businesses, which will now go under the hammer.
ArcelorMittal, the world’s largest steelmaker owned by the NRI businessman, LN Mittal, saw its shares underperforming in the market much of the week. Shares of the company, which has plants across the world (well, except in India), were down about 45 per cent year-on-year. Its market capitalisation hovers around $10 billion, a plunge from a little over $100 billion in 2007, at the height of the commodity boom.
That’s not all
The spate of bad news doesn’t stop here. POSCO, the South Korean steelmaker and one of the most respected companies in the industry, this week forecasted that it would make a full-year loss — the first ever in its history.
Back home in India, JSW Steel, one of the best stories that has come out of the domestic steel industry in the last decade, reported an 84 per cent fall in September quarter net profit at ₹117 crore, against ₹749 crore a year earlier.
Blame it all on China
While the run of bad news doesn’t stop here, the point is clear. The steel industry is at its nadir — hopefully.
Everywhere, prices are down, demand for steel seems to need a prescription of Viagra to rise; capacities are lying underutilised and the markets are flooded with steel; to be specific, Chinese steel. “Everything has fallen apart because of China,” the Financial Times report quotes Cindy Park, an analyst at Nomura, as saying. “We would need 20-30 per cent capacity reduction in China or the current situation will continue.”
This Bloomberg report adds that Chinese exports have risen by a record 27 per cent, to 83.1 million tons in the first nine months of this year. This is close to what ArcelorMittal produces in a year. Demand for steel in China has fallen 3.5 per cent this year, the first decline since 1995, which is before many of the BLoC readers were even born.
Chinese steel is flooding markets across the world, from India to the UK. In the domestic market, steel imports, mainly from China, have risen by 41 per cent in the first six months of this year.
India — a bright spot?
Despite that, the World Steel Association has called the Indian market one of the few bright spots in the global steel industry. Steel demand in India expected to cross the 80 million tonne-mark this year from 75 million tonnes in 2014. In 2016, the domestic demand for the metal will increase by 7.6 per cent, the Association predicted.
There is one more silver lining. Though POSCO is looking at an unremarkable year, its stocks rose the most in a year on hopes that the worst is over. The company has decided to focus on its core steel business and trim its operations.
POSCO’s peers might well follow suit, as the Chinese steel industry is in no hurry to get back to business.